New Delhi: To deepen India’s financial markets and address longstanding issues of liquidity in the debt sector, Union Finance Minister Nirmala Sitharaman on Sunday announced key reforms for corporate bonds during the presentation of the Union Budget 2026-27.
The proposals include the introduction of total return swaps (TRS) for corporate bonds and a new market-making framework, aimed at making these instruments more attractive to investors and issuers alike. “I propose to introduce a market making framework with suitable access to funds and derivatives on corporate bond indices. I also propose to introduce total return swaps on corporate bonds,” Sitharaman said.
The market-making framework is designed to tackle one of the primary challenges in India’s corporate bond market, poor liquidity. Under this initiative, designated institutions will be encouraged to provide continuous buy and sell quotes for select corporate bonds, enabling smoother entry and exit for investors. This is expected to result in fairer pricing, reduced borrowing costs for companies, and greater appeal for corporate bonds as an alternative to traditional bank loans or fixed deposits, the NDTV reported.
Complementing this, the Finance Minister proposed the rollout of total return swaps on corporate bonds, derivative contracts used alongside debt instruments to transfer the economic exposure of a bond without outright ownership transfers. This mechanism is anticipated to enhance hedging options and attract more institutional participation, further boosting market depth.
Sitharaman emphasised that these steps would foster a more vibrant debt market, supporting broader economic growth by improving access to capital for businesses.
The announcements extended to related areas, including incentives for municipal bonds to support urban infrastructure development. The Finance Minister outlined a Rs 100 crore incentive for single municipal bond issuances exceeding Rs 1,000 crore under schemes like AMRUT, alongside a Rs 1 billion overall incentive package for municipal bonds.
These measures are part of a broader push to restructure public sector financial institutions, such as REC Ltd and Power Finance Corporation, to strengthen funding for infrastructure projects.
Market reactions on social platform X (formerly Twitter) were swift, with financial services firm mStock highlighting the reforms as a significant step forward. In a post, they noted: “Corporate Bond Reforms: Budget 2026 Introduces Total Return Swaps for Corporates and ₹100 Cr Incentives for ₹1,000 Cr+ Municipal Bonds.”
The Finance Minister also touched on other financial sector enhancements, including the formation of a high-level committee on banking for ‘Viksit Bharat’ to review and align the sector with India’s growth ambitions.
